Mergers & Acquisitions: What Your Oil & Gas Company Might Be Missing During the Transaction
By Tony Jones
Mergers and Acquisitions Integration
Mergers and acquisitions (“M&A”) are a great way for companies to leverage economies of scale and grow. Oil and gas companies often turn to consulting firms to ensure return on their investment before, during, and after the transaction. Consultants assist before the merger, for target assessment and valuation, during the merger, for organizational alignment, business integration, and stabilization, and after the merger, for business process improvements and system integration.
Unfortunately, quite often the integration work is cut short. Companies execute on the transaction, merge organizations and reduce headcount, but leave their remaining staff to do more with less. Groups end up with less staff than before and have the same, or more, work to do across redundant systems and business processes. Hypercare during the stabilization period becomes the norm, and that ultimately burns out the remaining staff. Turnover then further compounds the problem when corporate knowledge walks out the door, leaving fewer resources who understand what and how the business is managed within a patchwork of applications.
Governance and Communication
During the merger, clear governance and communication can help companies navigate their way through turbulent periods of organizational uncertainty. Creating a program governance model centralizes the two-way communication between leadership and the organization. By establishing a governing body separate from day-to-day operations to manage an M&A program, leadership can focus communications around the objectives for each business unit and how they align with the overarching vision. This provides a clear framework in which the organization can operate and lessens the uncertainty.
During this transition period, companies have an opportunity to break down the traditional company silos, but often don’t take advantage of the opportunity. Utilizing a program, or project model provides the highly effective “mission” mentality toward achieving an end goal. This also leads to a “one-and-done” mentality; when the program ends, the goals are met and it is back to business as usual. Companies should focus on one area for long-term impact that is often an after-thought during an integration project: individual/business unit incentives.
Often, individual and business unit incentives can be in conflict because of internal struggles with transfer pricing. For example, operations and procurement incentives can be in conflict based on internal business economics. Which business unit is going to show the profit? Which is going to bear the cost?
Incentives Drive Behavior
Many companies have a two-factor incentive structure based on overall company goals coupled with select business unit targets. By considering a three-factor structure that crosses business units, companies can reduce this internal struggle and ultimately improve the bottom-line.
Integration programs are measured on how well new businesses are merged into the overall company. The key to this effort for program teams is taking the time to define success with measurable metrics that cross business units. Front office metrics should include back office receivable measures. Back office metrics should include front office deal entry measures. This is where consultants offer a value-add by bringing to the table a third-party, unbiased point of view and share industry and cross-industry trends of metric analysis and measurement. Whatever the specific measures, integration programs offer a unique opportunity to enfold cross-business unit incentives into the newer, stronger organization, and the program mission to break down
This is where consultants offer a value-add by bringing to the table a third-party, unbiased point of view and share industry and cross-industry trends of metric analysis and measurement. Whatever the specific measures, integration programs offer a unique opportunity to enfold cross-business unit incentives into the newer, stronger organization, and the program mission to break down age-old silo barriers become the “one and done.”